Tuesday, October 29, 2013

Well, since last Tuesday (October 22) when we issued our missive that one should be prepared for 100-point gains on the Dow for no reason, we at last have our first winner, and just five trading days hence. To boot, it propelled the Dow Industrials to a new all-time closing high (though we had to check because we didn't hear Maria Bartiroma hooting and hollering about it).

Today's close topped the September 18 close of 15,676.94, at the time, the all-time high. Something else interesting about our call from a week ago, which was implicitly a bullish "BUY STOCKS" advisory: the Dow is up about 213 points since then and has closed down on two days, up three, though the down days amounted only to a total of 55 points, while the gains were 268, or an order of magnitude of roughly five times better for the bulls.

If this isn't a sign of an imminent breakout, then nothing is. Since the debt ceiling and government shutdown masqueraded over all the internal financial problems facing the government and kept QE at a solid $85 billion a month without any slowdown even considered for another six months, there could be no more bullish news.

While the tone here at Money Daily is often flip and at times mistaken for an inherent pessimism, we are in the end nothing other than realists, now having come, somewhat reluctantly and late, to the sad realization that nothing in the equity market matters besides the official narrative from sources like the Wall Street Journal, CNBC, Forbes and Bloomberg and the continued loose money policies of the Fed, the latter, naturally, the most important.

Government debt and massive annual deficits ceased to have any meaning with Obama's first term, at the depths of the financial collapse, have since continued to grow, and will continue until they don't. What earth-shattering event it will take to upend the global liquidity spooning through the banks that is happening worldwide is as yet unknown, and the globe may be further from it now than it was just five years ago, the level of rampant money creation having gone from stimulus to necessity in the interim.

In the short term, this means that ordinary things like work, income, taxes and debt have little to no meaning and that getting onto the Federal Reserve's gravy train via the smorgasbord of handouts and/or entitlement programs is a sure path to immediate gratification, though not necessarily riches (though bankers with huge bonuses may beg to differ).

As with all gambling or investing, it's all about knowing who the other players are and what they're holding that is the key to success. With the Fed intent on creating more and more and more debt, ad infinitum (because they truly have no plan for tapering or unwinding their enormous balance sheet), one can either hunker down with real assets like gold or land, or play the paper chase with stocks, bonds, derivatives, options, and the rest.

The paper game has won for the past five years, and, as long as the economy keeps shrinking instead of growing, people, governments and businesses will continue borrowing, spending and defaulting, keeping the Fed busily creating more money in a vicious, non-virtuous cycle.

At some point, the debts will become so large as to be unpayable, and maybe we've already reached that point, so that the Ponzi scheme of unlimited money creation will have to continue and grow, a la Zimbabwe or Weimar Germany.

Fiat currencies have a perfect record, having failed 100% of the time, though this time the fiat is a global phenomenon. There is no currency in the world that is backed by anything but faith, and faith can be shattered any time the central bankers of the world deem necessary.

That, in the end, is the point. They control. We are but slaves on the global plantation, devoid of rights or wealth, with the means to exploit the system in whatever ways we find convenient. It surely won't last forever, and many are absolutely amazed it has lasted this long. Since we are five years into this global liquidity experiment without adequate capital, inflating assets willy-nilly all along the way, the only measures are the forex measures of currencies against the US dollar. When the dollar erodes to a point at which it is no longer maintaining itself as the reserve currency of the planet, the game is up.